This defeatist headline in the Washington Post, “Why America needs to get used to slower growth,” really bugs the Snickers out of me. The story itself, by ace reporter Neil Irwin, concerns a JPMorgan research report that I’ve been writing about.
Basically, the bank’s econ team argues weaker labor supply and productivity growth means US GDP growth will be markedly slower in the future than it’s been in the past. Since 1929, for instance, the US economy has grown by 3.3% a year, adjusted for inflation. But the economy has performed a lot worse during the past decade, growing just 1.8% a year. And JPMorgan thinks that’s what we should more or less expect going forward:
The long-run growth potential of the US economy continues to slide lower, by our estimate, to around 1.75%; if realized this would be the lowest of the post-WWII era.
The report and the WaPo piece on it reminds me of this bit from the recent Obama budget:
In the 21st Century, real GDP growth in the United States is likely to be permanently slower than it was in earlier eras because of a slowdown in labor force growth initially due to the retirement of the post-World War II baby boom generation, and later due to a decline in the growth of the working age population.
But, to quote Ebenezer Scrooge as he spoke to the Ghost of Christmas Yet to Come, “… answer me one question. Are these the shadows of the things that will be, or are they shadows of things that may be, only?”
Indeed, if the courses be departed from, the ends will change! America’s gloomy economic destiny is not carved in stone. US economic policy is far from optimal, after all.
For instance, immigration and Social Security reform could boost growth in labor supply. And a recent McKinsey report identifies way to boost productivity and GDP growth including “the continued expansion of shale gas and oil production; increased US trade competitiveness in knowledge-intensive goods; the potential of big data analytics to raise productivity within sectors; increased investment in infrastructure, with a new emphasis on its productivity; and new approaches to both K–12 and post-secondary education.”
Can America grow as fast in the future as it has in the past? McKinsey seems think so. And AEI’s Stephen Oliner, a former Fed economist, writes in a recent paper that chip innovation is continuing at a rapid pace, “raising the possibility of a second wave in the IT revolution [and] that the pace of labor productivity growth could rise to its long-run average of 2¼ percent or even above.”
The early part of the 1980s and 1990s both saw rising concern that the age of fast US economic growth was over — right before the economy accelerated. And here we are again. But these new fears will become reality only if we stand by and do nothing.